Southwest has "modest" expectations for new ancillary fee

Washington DC
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Southwest Airlines does not expect a new priority boarding service to be a significant driver of ancillary revenue, even as it says the offering will help fill a gap in its ancillary products portfolio.

The carrier started selling priority boarding positions at airport gates before flights on 21 January, as part of a series of new ancillary fees and changes that it will roll out this year to add $100 million of new ancillary revenue.

The priority boarding positions, in the "A" boarding group, are sold for $40 a flight beginning 45 minutes before the flight's departure.

Southwest chief executive Gary Kelly says in an earnings call today that investors should not expect that the airline will be selling "tens of these". He explains that the airline regards the new service's purpose as filling a gap, since the carrier did not offer a priority boarding service on its own.

Southwest does not assign seat numbers to customers, but passengers can obtain priority boarding through the purchase of higher "business select" fares or purchasing the airline's priority check-in service, called EarlyBird Check-In.

The carrier's chief commercial officer Bob Jordan says the airline is very "modest" when it comes to estimated sales of the priority boarding positions, adding that it expects to sell fewer than one position at the gate.

In February, the carrier will increase its charges for overweight baggage, which will go up to $100 from $50. The EarlyBird Check-In service will also increase to $12.50 each flight from $10 from March.

Later in the year, Southwest also plans to implement a "no-show" fee for passengers who purchase the most restrictive fares who fail to turn up for their flights.

The various fee changes are expected to contribute $100 million in incremental revenue in 2013, with an annual run rate of $150 million to $175 million, Jordan has said.

Asked today if Southwest plans to start charging for checked bags, Kelly says the airline believes that it has won additional passengers by not charging for the first two checked bags.

"That is our judgement and we don't have plans to charge for bags," he adds.